Ey india-tax-insights-issue

Tax Insights
June 2017
India Issue 11
Life after GST: The industry
gears up for the BIG change
A big bang approach for system
implementation
Malaysia GST story
Regulatory update
In this issue
ndustry
change
e
new

Publisher:
Ernst & Young LLP
Golf View Corporate Tower B
Near DLF Golf Course, Sector 42
Gurgaon - 122002
Editorial Board:
Geeta Jani
Jayesh Sanghvi
Keyur Shah
Nilesh Vasa
Rajendra Nayak
Shalini Mathur
Sushant Nayak
Program Manager
Jerin Verghese
Program Support
Pushpanjali Singh
Creatives
Jasmeet K Jaggi
Write to us with feedback/suggestions and
contributions at Tax.Update@in.ey.com
Team

Foreword
Sudhir Kapadia
Partner and National Tax Leader,
EY India
“When you go in for reforms,
you must never blink. If you
blink you get derailed.”
It is with this ambitious and upbeat sentiment that
the Finance Minister and the Prime Minister will
be launching the Goods and Services Tax (GST)
on the midnight of 30 June.
The implementation of GST is an outcome of
delicately balancing several interests, demands
and expectations. Its essence lies in cooperation
as against promotion of self-interests. With this
sprit, the policymakers and taxpayers now await
and prepare for the “one nation, one tax” vision
to take shape.
The 11
th
issue of our magazine India Tax
Insights focuses on the theme “life after GST” as
taxpayers transition to and implement the new
reform.
This issue provides insights into the complexities
and challenges that different sectors will need to
manage under the new tax system. The banking
k][lgj$^gjafklYf[]$oadd`Yn]lgÕfYdar]l`]
mechanism for charging internally between state
j]_akljYlagfklg^mdÕddl`]j]imaj]e]flg^hYqaf_
tax between distinct persons. The exporting
community is hoping that actual disbursement of
provisional refunds is done in a timely manner.
The infrastructure sector will need to deal with
issues surrounding rate contracts among others,
and the oil and gas sector will be looking to
minimize the adverse impact of being excluded
from GST. The stocks lying at depots, warehouses
and clearing and forwarding (CF) locations, as
well as with stockists and distributors, will be of
concern to many, including the pharma sector.
A feature on Malaysia’s experience with
implementing GST provides the key message
that it will take efforts from both the taxpayers
and the authorities to turn this initiative into
success. Malaysia faced the inevitable teething
problems with systems and documentation,
im]ja]k Yf[gehdYaflk!^jge[mklge]jk
and initial investigations from the revenue
authorities. Businesses were also subject
lgYfla%hjgÕl]]jaf_d]_akdYlagfO`YloYk
immensely helpful in managing the transition
was the guidance from the Government in the
form of more than 80 GST guides covering
kh][aÕ[afmklja]kYflgha[Ydakkm]kAfaYlgg
could take a cue from this.
The magazine includes a feature on the IT
preparedness of the industry and GST’s impact
on processes and systems. It also discusses
EY’s own cloud-based integrated ASP-GSP
solution, named DigiGST™, which provides
end-to-end support in GST compliance. The
integrated solution also offers the added
advantages of acting as a single point of
[gflY[l^gjYddj]lmjfÕdaf_Yfhj]n]flaf_YlY
Ögoaf_l`jgm_`emdlahd]gj_YfarYlagfk
The magazine also includes other thought-
provoking articles by our senior indirect tax
partners and directors that throw light on GST
and how India Inc. is transitioning to the new
regime.
In addition to our regular features – Global
News and EconoMeter, which provide a
snapshot of key global tax developments and
key economic indicators respectively — we are
starting off with Regulatory Updates from this
edition to keep you informed on key regulatory
announcements.
O]`gh]qgmoaddÕfl`akhmZda[Ylagf
interesting and timely, particularly when
India is on the brink of implementing its most
ka_faÕ[Yflafaj][llYpj]^gjeO]dggc^gjoYj
to your feedback and suggestions.

Life after GST: The industry gears up for
the BIG change
In this issue
Exports: Exemptions or ease of compliances and
expeditious refunds?
18
Sarika Goel, Tax Partner, Indirect Tax Services, EY India
Banking: A transformational change to bind technology
and process
14
Divyesh Lapsiwala, Tax Partner, Indirect Tax Services, EY India
Industry view — Rajendra Khandelwal, Head Taxation and Planning, ICICI Bank Ltd.
Life sciences: Would GST be the balm for the sector?
24 Suresh Nair, Tax Partner, Indirect Tax Services, EY India
Industry view — Mohan Nusetti, Head — Indirect Tax at Lupin Limited
Oil and gas: Restructure the business to maximize the
credits and ease the compliance burden
30
Abhishek Jain, Tax Partner, Indirect Tax Services, EY India
Industry views — Sanjeev Madan, DGM HMEL, and Ashish Purwar, DGM GAIL
Infrastructure: Reliance on unorganized sector could
prevent the industry from taking advantage of GST
22
Sidhartha Jain, Tax Partner, Indirect Tax Services, EY India
Industry view — Anil Khandelwal, CFO, Tata Projects Ltd.

32
India GST journey
36
Global news
46
EconoMeter
44
Regulatory update
Features
Special contribution
Malaysia recently completed two years of
GST. What a ride it has been so far, and
something for India to look forward to!
Aaron Bromley, Partner, Indirect Tax,
EY Malaysia
08
Malaysia GST: The story so far…
The industry needs to keep pace with
the developments in the GSTN and put
in place a faster release management
process on GSP-ASP that is scalable and
Ö]paZd]
Venkatesh Narayan, Leader DigiGST™
solution
10
A big-bang approach for systems implementation
We present an analysis of the key
highlights from the 17
th
GST Council
Meeting and its impact
Harishanker Subramaniam, National
Leader – Indirect Tax Services, EY India
06
GST rollout from 1 July
new

6 India Tax Insights
After a long wait for the
implementation of this transformative
tax reform, GST will be a reality
on 1 July 2017. The Government
and the GST Council deserve to be
complimented for forging consensus on
complex issues such as laws, rules and
rates within a short period of time for
this reform to be implemented.
While there are and there will be
several issues that need redressal and
[dYjaÕ[Ylagf$Yk]ph][l]afYj]^gje
of this magnitude, it is important
that the Government works with the
industry to minimize and manage
disruptions during the transition period
with responsive guidance as and when
issues arise.
The reform has already affected
behaviors in the value chain, with
inventory levels coming down
ka_faÕ[Yfldq@go]n]j$kge]j]j]kkYd
of transition credits with the industry
assuring distributors/dealers of
margin protection, including offers
of discounts in select sectors, will
hopefully improve the throughput of
goods and services in June and July
YffglaehY[lkYd]kka_faÕ[Yfldq
Stabilization of the supply chain by
July/August would be critical as
the festival season starts from and
maximum sales happen during this
period — also one of the reasons why
deferment of GST to September would
have been a problem.
The GST Council’s decision
to defer transaction-level
]lYadkÕdaf_g^gmloYj
and inward supplies for the
month of July and August till
September with an interim
arrangement for aggregated
return will provide some
relief for the industry and
compliance facilitators.
This was a serious concern for the
industry and service providers with
return formats undergoing a change on
3 June. It is critical for GSTN and the
afmkljqlg`Yn]km^Õ[a]fllae]lgl]kl
l`]aj=JHYlY^gj?KLJÕdaf_kZ]^gj]
the process as envisaged in law gets
underway.
GST rollout from
1 July

7
Issue 11
The Council also approved several
rules, the most important of which
Yj]l`]Yfla%hjgÕl]]jaf_jmd]kLog
committees are expected to be set
up to examine such representations
YfÕdl]jl`]e$Yfl`]jmd]keYq
be for a period of two years. These
rules and mechanisms need proper
understanding. The statement that
Yfla%hjgÕl]]jaf_hjgnakagfkYj]egj]
a deterrent is welcome, but this view
needs to be implemented in that spirit
on the ground. The period of two
years, if it is correct, is long and needs
revisiting considering global practices.
The industry’s expectation that some
of its representations around rates
will be heard will now have to wait for
some time. The hospitality industry’s
concern was, however, addressed with
the 18% rate now being applicable for
room charges up to INR7,500 and
restaurants in hotels attracting 18%
on par with other AC restaurants.
Another issue that was addressed was
that of allowing credit on IGST paid on
import of ships against GST payable
on output supplies of the importer.
The vehicle leasing industry’s issue of
getting excise credit against GST on
leases at the underlying vehicle GST
rate remains unaddressed and may be
a huge problem for both the industry
and its users. Clarity around how
area-based excise incentive refunds
will work, besides state incentives, is
kladdmf[d]YjYfj]imaj]kaee]aYl]
attention, as a large of number of
sectors will be affected.
E-way bill has been an area of concern
for the industry, especially in the
manner in which it was being proposed,
though an agenda item for GST Council
consensus is still awaited. Several
states have expressed reservations,
so we might have to wait longer and
beyond 1 July for a resolution. The
statement that till then the current
system may exist makes one wonder
whether check posts will continue
and the industry’s aspiration of free
movement of goods in one India will
remain a dream.
This is a reform that we as a country
have waited patiently for long and it
is at our doorstep. Every stakeholder
— the Central and state governments,
the GST Council, the GST Working
Committee, the industry and their
advisors — has worked tireless hours for
months to get ready for this milestone
and it is time for all to collectively
embrace this reform and manage this
massive change with hopefully limited
disruption.
L`akYjla[d]oYkÕjkl^]Ylmj]afEafl!
Harishanker Subramaniam
National Leader – Indirect Tax Services,
EY India

Malaysia
GST
The story so far…
@]j]afEYdYqkaY$o]`Yn]j][]fldqhYkk]l`]
second anniversary of the introduction of the
Goods and Services Tax (GST). What a ride it
has been so far, and something for India to look
forward to!
The introduction of GST in Malaysia was announced
during the Prime Minister’s Budget speech on 25
October 2013, with an effective date of 1 April
2015. The GST replaced the previous sales and
service taxes, which were single-stage consumption
taxes applying on, relatively speaking, only a small
number of taxpayers.
GST is levied at the rate of 6% on most domestic
supplies of goods and services. The GST legislative
framework provides for exported goods and
services as well as some basic items to be zero
Aaron Bromley
Partner, Indirect Tax
EY Malaysia

9
Issue 11
rated; certain services such as private
healthcare, education and residential
housing to be exempt; while there
is also “GST relief” for other taxable
supplies. In the main, GST- registered
taxpayers making taxable supplies are
entitled to recover in full the input tax
af[mjj]gfl`]ajY[imakalagfk
From the announcement of the
introduction of the tax to its
commencement on 1 April 2015,
most companies in Malaysia undertook
comprehensive GST implementation
projects. EY in Malaysia assisted some
of the country’s largest corporate
groups, as well as multi-national
entities, across most industries. Like
preparations for GST in India, those
projects covered the business in its
entirety - supply chain, systems and
processes, legal and even human
resources, among others. It goes
without saying that the companies
who started this journey the earliest
were the most prepared and the most
successful with being GST- compliant
from the outset. The experience during
that period, while stressful at times,
was also richly rewarding from a
professional perspective and the bonds
formed with our clients remain strong
today.
GST in Malaysia is administered by the
Royal Malaysian Customs Department
(RMCD). From the beginning, RMCD
was pro-active in assisting businesses
with their preparations. From public
and industry seminars, advertising
campaigns, accredited GST Tax Agent
courses, even direct discussions
Z]lo]]fk]fagjg^Õ[aYdkYfafmkljq
leaders, much effort was made to
help taxpayers be as prepared as
possible – provided they made the
effort themselves (and not all did).
Up to this point, RMCD has released
in excess of 80 GST guides covering
kh][aÕ[afmklja]kYflgha[YdYj]Ykg^
GST. These guides are a key
resource for clarifying areas
of the law and providing guidance
on RMCD’s interpretation of the same.
The start of the GST saw inevitable
teething problems with systems
Yfg[me]flYlagf$im]ja]k Yf
complaints) from customers, as well
as initial investigations from RMCD
on matters such as businesses not
registered for GST, those that had
registered voluntarily and were yet to
make taxable supplies and GST refunds
claimed, among others. At the same
time, businesses were subject to Anti-
HjgÕl]]jaf_d]_akdYlagfl`Yl`YZ]]f
introduced earlier, with one of its main
gZb][lan]kZ]af_lgeYaflYafhjgÕl
margins despite the introduction of
GST. It was, and remains, a challenging
time for business.
Two years on from implementation, we
move into a new phase: comprehensive
audits and investigations. While these
have been carried out already to a
certain degree, RMCD has been vocal
that all registered taxpayers (in excess
of 400,000) should expect a full
GST audit in the next few years. This
coincides with changes to the GST Act,
particularly the penalty provisions, in
a clear sign that businesses need to
continue to be diligent in their GST
obligations and that these did not end
with just being prepared by 1 April
2015. Indeed, not too many weeks
go by in Malaysia without prominent
press attention given to prosecutions
YfÕf]kj]dYl]lgk]jagmk[Yk]kg^
GST non-compliance. The technical
discussions with Customs have grown
in number and complexity. More cases
advancing to the GST Tribunal stage
following disputes is an indication of
the change in the GST landscape.
Oal`gmlim]klagf$[gehYj]lg
Malaysia, the implementation of GST
in India will be more complex with
GST will
streamline the
current complex
indirect tax
regime and it
will change the
way businesses
operate through
the inevitable
systems
29 states having multilayered tax
systems. The Indian government has
provided less than nine months for all
businesses to undergo transformation
for the implementation of GST
come 1 July 2017, compared with
approximately 17 months preparation
time in Malaysia. It will be a challenging
situation, no doubt. On the positive
side, the currently complex indirect
tax regime will be streamlined and
it will change the way businesses
operate through the inevitable systems
enhancement and automation that the
j]hgjlaf_j]imaj]e]flkg^?KLZjaf_
Generally speaking, the implementation
of GST in Malaysia was a success and
that was in no small part due to the
efforts put in by both the taxpayers
and the authorities. It is incumbent
on both sets of stakeholders in India
to work together to ensure a similarly
successful outcome, albeit this is just
the start of the GST journey.

Q
Unless there is a last-minute change
of heart, it now seems certain that
GST would be implemented on 1 July
2017. We have been working closely
with the industry, which has really
strived over the last few months to
get its systems and processes in sync
with the new legislation. Over the last
two years, much of the focus has been
on the GST law, rules, rates of duty
and the potential impact on business.
Most companies have analyzed in
detail the impact of GST on their
business in terms of tax, supply chain,
accounting and information systems
and are in a fair state of preparedness.
Many of the master level data sets
have been updated and some testing
has been done using interim GST
patches available from leading ERP
providers. Over the last two months,
it is compliance and the need to get
the systems ready to interface with
the Goods and Services Tax Network
(GSTN) that have taken precedence
over other issues.
L`]?KL;gmf[adYhhjgn]l`]ÕfYd
return formats in its meeting of 3
June. All the relevant rules for GST
_g%dan]`Yn]YdkgZ]]ffglaÕ]Alak
heartening to observe the unanimity
in the Council’s deliberations, with
not a single decision being put to
vote. While the revised formats are
designed for simplicity, it does turn the
clock back for us, considering that a
The country is set for
GST implementation by
1 July 2017. Do you
think that the industry
is ready to accept
and implement the
technology change?
Venkatesh Narayan
Leader DigiGST™ solution
A big-bang
approach
for systems
implementation

11
Issue 11
Q
lot of development has already taken
place over the last few months using
the formats available. Currently, the
industry and its IT partner ecosystem
are engaged in understanding the
revised formats and developing the
code as per the new rules. From the
perspective of the industry, systems
need to be ready on 1 July to issue
invoices in new formats and with GST
computation. So, one of the most
important actions at their end is to
ensure that the latest patches from
the respective OEMs are installed and
tested for at least a week. The industry
will thus have to keep pace with the
developments in the GSTN and put in
place a faster release management
hjg[]kkl`YlakYdkgÖ]paZd]
First up, this is going to be a classic
big-bang approach for systems
implementation. All taxpayers across
all sectors would transition to the new
tax regime on the same date. Some
other countries adopted a phased
approach to VAT implementation,
where industry sectors were included
in the new tax regime over a period
of time. Ideally, a big-bang approach
should be preceded by a period of
extensive testing within both the
respective organizations, i.e., the
Government and industry, as well as
the interfaces between applications.
In most other countries where GST/
VAT has been implemented, the
How much lead period
would the industry need
to test and implement
the change?
Most of the perceived challenges are
the outcomes of the very short lead
time available for implementation.
At this point, perhaps the greatest
challenge is in getting the latest scripts
from the software OEMs, implementing
these patches on production systems
and doing some limited testing before
the go-live date. We are aware that
GSTN is doing a commendable job
against the very stiff deadlines. As the
^gjeYlk`Yn]mf]j_gf]Yka_faÕ[Yfl
change, GSTN has had to rework
the earlier APIs, and it has started
releasing them to the GSP community
in small sets, starting with GSTR 1 and
*O`ad]l`]kh][aÕ[YlagfkYj]`]dh^md
in coding the application, unless they
are implemented on the GSTN sandbox,
their working cannot be tested.
There are also a number of sectors
where manual invoicing is a common
practice. Companies in these sectors
need to either implement an invoicing
system or do manual data entry in
Excel and then do an upload.
9fgl`]jka_faÕ[Yfl[`Ydd]f_]akl`]dY[c
of awareness about the GST provisions,
particularly in the SME sector. While
?KLFak_]llaf_Yfg^Öaf]=p[]dmladalq
for this sector in particular, several
aspects of the law, especially those
relating to valuation and transition,
continue to befuddle many taxpayers.
The restriction of credit on duty paid
stocks to 60% of the Central GST
(CGST) payable or lower, depending
on the rate of duty, is a cause for
concern among many sectors, with
media reports of destocking of goods
at the retail level to avoid double
What are the common
challenges that the
industry is facing?
industry was given a few months after
l`]j]d]Yk]g^l`]ÕfYddYoklg_]lalk
systems and processes ready. What
we are going to attempt in India is
mfaim]$oal`Yd]Ylae]g^d]kkl`Yf
Y^gjlfa_`lZ]^gj]l`]ÕfYdarYlagf
of all laws and rates of duty and the
go-live date of GST. At the time of
writing this, the next Council meeting
is scheduled for 18 June to close
h]faf_akkm]kkm[`YkYfla%hjgÕl]]jaf_
dYoYfÕfYdarYlagfg^mlqjYl]kAlak
hoped that there would be no more
ka_faÕ[Yfl[`Yf_]kafl`]j]hgjlaf_
formats between now and the go-live
date. In India, we have seen that some
industries, especially in the services
sector, have been relatively slow
in getting GST-ready, while others,
especially in the manufacturing sector,
have been keeping pace with the
developments in GSTN in terms of the
YlYj]imaj]e]flkYfj]hgjlaf_ZYk]
on APIs. That may be in part because
k]jna[]kk][lgjlYphYq]jk[mjj]fldqÕd]
only two returns in a year and that too
at the aggregated level.
GST’s impact in terms of
process and systems change
is the highest in the services
sector.
All those organizations that are
not ready yet have fewer than two
weeks to get their systems up and
start uploading their outward supply
transactions into GSTN from July
2017. They still have a month longer
for purchase register reconciliation.
This is also the approach that GSTN
has outlined, in terms of its priorities,
to focus on GSTR 1, 2, 3 and 6 in that
order.

Q
taxation. The treatment of existing
area-based exemptions has also not
Z]]f[dYjaÕ]af]lYadafl`]?KLdYo
On the registration front too, it can
be seen that against an expected 80
lakh taxpayers, the number of GST
registrations is in the region of 65
lakh. This could also be the result
g^l`]j]imaj]e]flkmf]j?KLfgl
percolating down to all sectors.
To sum up, I would say that the
greatest challenges being faced by the
industry toward a smooth transition
to GST continue to be in the areas of
awareness of the law and information
technology.
An empowered group under the then
Chairman of UIDAI was set up by the
previous UPA Government to identify
a suitable model for IT enablement
of GST. The group considered issues
km[`YkYmfaÕ]lYphYq]jhgjlYd$
services on a cafeteria approach to tax
administrations and analytics. In order
lgZjaf_afYf]^Õ[a]flYfÖ]paZd]
model of implementation, GSTN was
recommended to be incorporated as a
Section 8 (under the new Companies
9[l$fgl%^gj%hjgÕl[gehYfa]kYj]
governed under Section 8), non-
government, private limited company,
which was happened on 28 March
2013. The Government of India and
state governments hold a 49% stake
in the venture, while the balance 51%
akoal`fgf%_gn]jfe]flÕfYf[aYd
institutions. Currently, the Center
and state indirect tax administrations
work under different laws, regulations,
procedures and reporting formats,
Yf[gfk]im]fldql`]ALkqkl]ek
work as independent sites. GSTN has
addressed this problem by creating a
common portal for all taxpayers and
following an API-based approach for
interfacing with external applications.
The API formats for returns etc. have
been standardized using the Java
Script Object Notation (JSON) format.
GSTN has also created an ecosystem
of GST Suvidha Providers (GSPs) for
facilitating taxpayer compliance by
consuming these APIs. It has also
encouraged start-ups and other
software OEMs, called Application
Service Providers (ASPs), to create
applications for GST compliance.
ASPs will interact with GSTN through
the GSPs. This has achieved the twin
GSPs are service providers who
connect to GSTN over secure links
YfYj]YZd]lgkmZealYfim]jq?KL
returns data from GSTN using APIs
published by GSTN. Essentially, they
serve as a secure communication
channel between the ASPs and GSTN.
All the tax functionalities — including
upload of transaction data, validation,
reconciliation, dashboards and creation
of returns for digital signing — are
handled by the ASPs. At present, there
are 34 authorized GSPs but many more
[gehYfa]kYfÕjekl`YlYj]9KHk
How does the GSTN
work?
What are the roles of
GSPs and ASPs?
objective of farming out capacity
while maintain a tight control over
security through smaller numbers of
trusted partners. GSTN is also creating
an Excel-based utility for small and
medium businesses that can be directly
uploaded on the portal. GSTN will
Ydkghjgna]ogjcÖgoYhhda[Ylagfk
to a large number of state tax
administrations, enabling assessments,
audits, refunds etc. online. It would also
provide a mechanism for Integrated
GST (IGST) settlement and tax
collection reconciliation by connecting
to accounting authorities, banks and
the Reserve Bank of India.

Q
I believe that the solution should
be evaluated for ensuring taxpayer
compliance because corporate
governance and reputation are non-
negotiable. Across the company, the
j]imaj]e]flk^gja^^]j]fl[dYkk]kg^
users are likely to be different. From
a CFO’s perspective, having robust
compliance with strong dashboards
is important, while a CTO may
be concerned with issues around
integration and data security. Tax
heads would typically be concerned
around correct reporting of taxes and
availment of input tax credits. The
solution should meet each of these
j]imaj]e]flkYfq]lZ]k[YdYZd]Yf
Ö]paZd]lge]]lf]oj]imaj]e]flk$Yk
Zgl`?KLdYokYfmk]jj]imaj]e]flk
are subject to change. EY’s own cloud-
based integrated ASP-GSP solution,
named DigiGST™, has been built from
the ground up using these principles.
DigiGST™ provides end-to-end support
in GST compliance and enables smart
enterprises with deep insights through
intuitive dashboards for critical
business decision making.
The integrated solution also
offers the added advantages
of acting as a single point
of contact for all return
Õdaf_Yfhj]n]flaf_YlY
Ögoaf_l`jgm_`emdlahd]
organizations.
On what criteria should a
company select a GSP?
13
Issue 11

Banking:
A transformational
change to bind
technology and process
Banking is a sector with a national
footprint and presence in almost all
cities and towns. It has a complex
delivery model, with services provided
locally at the branch level, at select
^]oZjYf[`]k$Yll`]j]_agfYdg^Õ[]k
YfYll`][gjhgjYl]g^Õ[]9hhda[Ylagf
of GST in the form that it is proposed
ea_`lZ]Yka_faÕ[Yfl[`Ydd]f_]^gj
such business models in being able
to identify the right “state.” The
afl]j]h]f]f[]Z]lo]]fg^Õ[]jk
coupled with centralization of functions
such as credit risk analysis, treasury
and lending adds to the complexity.
Banks have another task at hand
from a systems perspective. Banks
use several systems in addition to the
core banking software. Each of these
systems will have some aspects related
to tax, and a change in the manner in
which tax applies will mean that every
km[`kqkl]ef]]klgZ][gfÕ_mj]lg
the new environment.
We have been involved in this
journey with some banks for the
past eight months. We started with
mapping all product processes.
Thankfully, as taxability principles
were always expected to be the
Divyesh Lapsiwala
Tax Partner, Indirect Tax Services
EY India
same as for service tax, our effort
was more about dissecting functions
related to delivery of services, to
determine where the services are
hjgna]É^jgeÊL`]dYoj]imaj]kl`]
determination of the “establishment
most directly concerned with the
provision of supply.” For this, banks
have to examine every product
process and make an election of which
state operation is the most directly
concerned with the supply. This may
be easier where service provision is
dYj_]dqdaf]YjYfgf]g^l`]g^Õ[]k
always plays a more dominant role
than the others. In banking, though,

Life for banks after GST is expected to
be very dynamic in the initial period,
and they have to brace themselves
up not only to deal with the technical
challenges of interpretation but also
to operationalize position and process
changes, be ready to meet customer
expectations and deliver compliance in
a timely and accurate manner.
L`]lghÕn]Ykh][lkl`Yl
banks are dealing with
today are
Getting systems ready to
be able to issue invoices
statements, and purchase
and sales register effective
go live date
2.
Finalizing the mechanism
for charging internally
between state
j]_akljYlagfklg^mdÕdl`]
j]imaj]e]flg^hYqaf_lYp
between distinct persons
4.
Building consensus across
the industry so that all
players take common
technical positions
1.
Closely looking at vendors
3.
Preparing to manage the
exception reports and
mismatch reports that will
be thrown up from the
Õjklegfl`gfoYjgf[]
GST and goes live
5.
there are several instances where
emdlahd]g^Õ[]kYfemdlahd]klYl]kYj]
involved in providing a solution to the
client and therefore this has become a
bm_]e]fl[Ydd$oal`Yn]jqÕf]daf]af
the interpretation of the “from” state.
Another interesting aspect we worked
upon was the location of the customer.
While it is a very simple proposition
in the law, it is challenging for banks
as even retail customers have
multiple addresses with the bank and
these addresses may be in different
states. Based on interpretation of
the guidelines and consensus among
industry players, a position has evolved
to consider the communication address
available on records.
These are just simple examples of how
complex this journey has been for
banks thus far. Once these technical
calls are made, systems will have
lgZ]j][gfÕ_mj]lgZ]YZd]lg
deliver taxation in this manner. Also,
_an]fl`Yll`]j]_mdYlagfj]imaj]k
reconciliation to be prepared at the
state level, internal records of mapping
revenue to states are being looked at
to make sure that the revenue mapping
ideology is close to the tax positions
been taken in GST. While this mapping
is not mandatory, it is likely to ease
out the need for preparing complex
reconciliations if internal revenue
capture is similar to the manner in
which tax positions are arrived at in
GST.
On the procurement front, banks with
a widespread network end up buying
ka_faÕ[Yfldq^jgenYjagmkn]fgjk
Therefore, the risk of loss of credit
if vendors do not comply with GSTN
j]imaj]e]flkakj]YkgfYZdq`a_`
This will impact working capitals of
ZYfck9dkg$l`]j]imaj]e]fllghYq
reverse charge on transactions with
unregistered dealers may have a PL
impact for banks given that recovery is
limited to 50%.
15
Issue 11

Rajendra Khandelwal
@]YLYpYlagfYfHdYffaf_$
ICICI Bank Ltd.
GST is clearly a transformational
change, and at ICICI Bank we welcome
this change. It introduces the concept
of dual levy, with the power to tax
services also being shared with states.
We appreciate this, and understand
that the sharing of powers is not
to the detriment of the taxpayer.
@go]n]j$_an]fl`Yll`]Zmkaf]kk
model that banks operate is very
complex, fairly early in the journey
of GST, we, through the Indian Banks
Association, took the lead in routing for
a centralized registration for banks.
The objective of this was to balance
the need for ensuring that states
get revenue out of our services to
customers across the country, and us
not having to deal with the challenge
of dissecting our operations at a state
level. This challenge was not merely
about the fact that we had to split our
business but had more to do with the
fact that the integrated manner of our
operations made it almost impossible
to determine the “state” from where
services are being provided.
With the Government expressing their
inability to grant such a registration,
we immediately embarked on the
journey to identify the aspects that
j]imaj][`Yf_]eYfY_]e]fl$Yf
created a steering committee and a
hjgb][leYfY_]e]flg^Õ[]lgjan]l`ak
change. We also immediately started
drives to sensitize various teams
about the nuances of GST so that the
organization started to understand
l`]dYo$Ykcl`]ja_`lim]klagfkYf
determine its individual way forward.
9Õf]%lggl`[geZj]na]og^Ydd
products and operations helped us
decide on our tax positions. Once this
was done, we triggered the process
of review of systems and processes.
We also started reviewing our
documentation with regard to each
product.
In parallel, we started a customer
outreach program, to determine their
expectations. This also helped us
customize our approach so that we are
proactively prepared for dealing with
their “asks” once GST goes live.
Our procurement teams have also
commenced vendor education drives
and a detailed process of evaluating
their capabilities to deliver compliance
under GST.
At ICICI Bank, we are focused on
janaf_]^Õ[a]f[a]kYf]fkmjaf_l`Yl
o]Yj]YZd]lghYkkgfl`]Z]f]Õlkg^
these to our customers. I believe we
are ready to meet this change. For
me, personally, this has been one of
the most interesting and challenging
journeys in my professional life. I
think it is a very bold decision by the
Governments to roll out this regulatory
change, and I congratulate them for
making it a reality.
Industry
view

17
Issue 11
How can tax domain
knowledge and
technology optimize
l`]Z]f]Ôlkg^?KL7
Our DigiGSTTM
solution provides end-to-end GST
compliance support enabling smart enterprises
with insights for critical decision-making, built on
a secure technology platform by professionals
with strong tax and sector knowledge.
ey.com/in/digigst #BetterQuestions
©
2017
EYGM
Limited.
All
Rights
Reserved.
ED
0518

Exports:
Exemptions or ease of
compliances and expeditious
refunds?
Sarika Goel
EY India

Global merchandise trade is expected
to rebound this year as per the World
Trade Organization forecast, but
developments on the India GST front
are keeping Indian exporters a worried
dglKaf[]l`]j]d]Yk]g^l`]ÕjklEg]d
GST Law in June 2016, the provisions
relating to exports of goods and
services have seen multiple and drastic
changes.
Of the lot, exporters operating from
SEZs have reasons to cheer, as the
ÕfYdA?KL:addhYkk]Zql`]HYjdaYe]fl
on 12 April 2017 allows supplies
of goods or services or both to SEZ
developers or units to be considered as
zero rated, which means that they have
the option to claim upfront exemption
or a refund on their procurements.
@go]n]j$mf^gjlmfYl]dq$kaeadYj
Z]f]Õlk`Yn]fglZ]]fhjgna]lg
exporters operating as Software
Technology Parks (STPs), Export
Oriented Units (EOUs) or Electronic
@YjoYj]L][`fgdg_qHYjck =@LHk!$
which also have an almost similar
contribution to India’s exports as SEZs.
This could lead to the exit of many
[gehYfa]k^jgel`]=GM'KLH'=@LH
schemes, to operate as domestic tariff
area (DTA) exporters.
While the Central GST Bills were
passed by the Parliament on 12 April
2017 and the GST Council has also
released the Rules, there are various
fundamental issues that the exporter
segment is still grappling with.
19
Issue 11

Fate of
Foreign
Trade
Policy (FTP)
schemes
It is still not clear whether the
export promotion schemes
under FTP, such as the Advance
Authorization and Export
Promotion Capital Goods (EPCG)
Scheme, would continue to allow
for upfront exemption from import
duties, including IGST. Further, if
the schemes are not going to be
[gflafm]$[dYjalqakj]imaj]gf
the fate of importers that have
already been issued authorizations
but would import/procure under
the GST regime.
Likewise, exporters are awaiting
information on continuation of
Zgmlaim]k[`]e]kkm[`YkE=AK'
SEIS in their present form, as well
as clarity on what would happen to
current scrips in hand, as the GST
Bills or the Rules do not contain
any provision allowing payment of
GST through the usage of these
scrips.
Procedures
and
compliances
for SEZs
under GST
The GST Bills and recommended
Rules prescribe a separate
j]_akljYlagf^gjK=Rk@go]n]j$
the rules are not clear on whether
multiple registrations, and hence
multiple sets of compliances,
ogmdZ]j]imaj]o`]j]Y
company has multiple SEZ units
within the same state.
Also, for SEZs, an exemption
mechanism based on self-
declaration should be explored
by the Government instead of the
current multi-level approval and
documentation system involving
various forms.

Claiming
refund of
Input Tax
Credit (ITC)
by exporters
In addition to apprehensions
around actual disbursement of
provisional refunds in a timely
manner, as is envisaged under the
law, it is generally being feared
by the industry that discretionary
hgo]jkoal`j]^mfg^Õ[]jk[gmd
bring in ambiguities in the process
of timely sanctioning of the
refund claims.
Further, the GST Law provides
that no refund of ITC be allowed
if the supplier of goods or
services or both avails drawback
g^[]fljYdlYp9[dYjaÕ[Ylagf gj
possible realignment of statutory
hjgnakagfk!akj]imaj]lg]fkmj]
that the drawback given against
basic customs duty is allowed to
be continued without adversely
impacting the exporters’ right
to claim refund of ITC, as basic
customs duty is in any case not
available as a credit under the
GST regime.
Under GST, with most exemptions
for exporters having been
withdrawn, the most crucial
aspects that exporters are looking
for are ease of compliances and
expeditious refunds. Thus, a
special focus by the Government
on the needs of Indian exporters
on a timely basis would go a long
way in making Indian exports
competitive.
21
Issue 11

Reliance on
unorganized sector
could prevent the
industry from taking
advantage of GST
Infrastructure:
With the introduction of GST being
imminent, trade and industry are
gearing up to meet the challenge,
and the infrastructure sector is no
exception.
One of the biggest challenges of the
sector at this point is the lack of clarity
on the continuity of exemptions that
are currently in place, such as service
tax exemption on road projects, duty
exemptions on machinery used for
kh][aÕ]hjgb][lk$Yf]]e]]phgjl
Z]f]ÕlkAlakdac]dql`Yll`]?KLj]_ae]
will see most of these exemptions
getting converted into a refund route,
and it is imperative for the industry
to evaluate and understand the net
impact in the changed scenario.
The sector might see an increased
ability to take credits in the GST
regime; however, the overall impact
would need to be evaluated considering
the fact that
the rate on works
contracts has now
Z]]fÕp]Yl)0
whereas the general
rate of tax currently
applicable on the
output side for
the sector hovers
around 12%.
On the procurement front as well, a
large segment of the sub-contractors
or vendors engaged by the industry
is unorganized. This is an additional
challenge for the sector because in
gj]jlgYnYadl`]^mddZ]f]Õlg^?KL$
the entire ecosystem needs to be
[gehdaYfl^gj[j]alklgÖgok]Yed]kkdq
It is unlikely that the smaller players
will be fully prepared to cope with
the challenges of being GST ready,
kh][aÕ[Yddqgfl`]AL^jgfl
9alagfYddq$l`]j]imaj]e]fllghYqlYp
on advances received and provisions
relating to withholding of taxes would
Ylgl`][Yk`Ögohj]kkmj]kafYf
already cash-strapped sector.
Given the above, it becomes imperative
for any player in this sector to plan
its transition into the GST regime
kh][aÕ[Yddqc]]haf_afeafl`]hgjl^gdag
of projects serviced by the sector. Some
of the critical aspects of this transition
process involve revisiting the tax cost
envisaged for a project at the bid stage,
the tax position of the contract (i.e.,
whether inclusive or exclusive) and,
Sidhartha Jain
EY India

23
Issue 11
most importantly, the ability to recover
the increased taxes from the project
owners as laid out in the change in law
clause of the contract agreed. There
may be further complexities, such
as treatment of delayed projects or
[Yk]kg^hja[]nYjaYlagf$oà[`j]imaj]
Ykh][aÕ[Yfhgafl]YhhjgY[`lgZ]
developed.
From a transition planning perspective
also, the industry needs to gear up to
plan for inventory and stock on the
transition date, evaluating the status
of WIP lying in books and planning
for transition credits (which continue
to lack clarity in respect of ongoing
projects), vendor management
and payment terms, given that the
operations for most companies in this
sector are spread across the length
and breadth of the country. It is also
important to formulate a strategy for
Zaaf_g^f]ohjgb][lklgY]imYl]dq
take into account the proposed
changes under the GST regime.
The sector has historically witnessed
extensive litigation on aspects of
exemptions, taxability, valuation etc.
While the introduction of GST should
put to rest the debate on multiplicity of
Introduction of GST is one of the most
ka_faÕ[Yflhgkl%Af]h]f]f[]j]^gjek
that India is going to witness. It is going
to change the way business is done in
l]jekg^]^Õ[a]f[qYfljYfkhYj]f[q
For the infrastructure sector,
tax planning and structuring has
historically played a very critical role
in the pricing methodology adopted
for bids. GST seeks to change many
of these fundamentals; however,
the lack of clarity on critical aspects
such as continuity of exemptions
and concessions just short of the
implementation date is adding to the
challenges of transition.
taxes on works contracts, the interplay
of tax rates on goods and services
would still need to be watched out for.
Most infrastructure projects cater to
public utilities where project owners
do not have the ability of taking
credits, and thus the increase in tax
cost would only lead to a cascading
]^^][l$oà[`]^]Ylkl`]]^Õ[a]f[q
that GST proposes to bring about.
The Government has a steep task of
balancing the core principles of GST
oal`l`]j]imaj]e]flkg^làkk][lgj$
which forms the backbone of the Indian
economy.
Most of the projects/contracts
undertaken are with public sector
undertakings and any change
in pricing/tax recoveries entails
extensive negotiations, which are time
consuming. Delays in concluding these
discussions would result in an adverse
working capital impact on an already
hj]kkmj]k][lgjl`Yl$a^fglY]imYl]dq
addressed, could hurt the execution of
critical infrastructure projects.
The lack of clarity has affected the
level of preparedness of the industry,
especially of the smaller players,
which would have a spiral effect on
the industry at large. Another big
challenge for the sector is the reality of
the unorganized sector — the additional
compliance responsibility in this regard
would add to the administrative burden
of the sector.
On the procedure front as well, the
continuity of waybills is a setback
to the expectations of the industry
g^kaehdaÕ[Ylagfg^hjg[]mj]kYf
administrative compliances for
interstate movement.
The Government should look at
an early redressal of these critical
concerns of the industry for a
successful transition into GST by
providing clarity at the earliest and
providing enablers for the smaller
players to be GST ready.
Industry view
Anil Khandelwal
CFO
Tata Projects Ltd.

The pharma industry is gearing
up to face the challenges of
this transformational change,
which would impact all facets
of its operations.
Life
sciences:
Would GST be
the balm for
the sector?
Suresh Nair
EY India

Considerations for the
pharma industry
Inverted duty
structure
The GST Act provides for refund
of accumulated credit resulting
from a higher tax rate for
inputs than outputs. Another
positive is that the transitional
provisions provide for transfer
of accumulated credit under
the current indirect tax law into
the GST regime. The industry
ogmddggc^gjoYjlgZ]f]Õ[aYd
rules that enable refund of such
transitioned credit.
Special provisions for GST-free
movement of inputs goods/
eYl]jaYd^gjbgZogjcÕfe]flagf
afl`]?KL9[l@go]n]j$l`]j]
does not appear to be any
provision that enables movement
of goods for job work on payment
of GST, enabling the job worker to
pay GST on supplies of processed
goods. The GST Council is
expected to clarify this aspect in
the coming days.
Loan licensee
model
Transitional provisions
For the pharma industry, stocks
lying at depots, warehouses
and clearing and forwarding
(CF) locations, as well as
with stockists, distributors and
[`]eaklk$Yj]imal]`a_`Kge]
of the transitional provisions in
the current draft rules do not
Yhh]YjlgZ]Z]f]Õ[aYd^gjl`]
industry. The GST Council should
hjgna]^gjZ]f]Õ[aYd[dYjaÕ[Ylagf
to ensure that the industry is not
worse off during the transition
phase.
The rate of GST for pharma
^gjemdYlagfk`YkZ]]fÕfYdar]
Yl)*Yf^gja]flaÕ]
lifesaving drugs at 5%. There
is an increase in the GST rate
for medicines, attracting 12%,
as compared to the current
effective indirect tax rate on
formulations, which translates
into a hit of around 3% for the
industry. Since the prices for
some of the formulations have
been set by the Government
under the National List of
Essential Medicines (NLEM), the
industry would look forward to
support from the Government
in passing on this additional tax
cost by revising the MRP of such
medicines.
Continuity of area-based
afaj][llYpZ]f]Õlkmf]jl`]
GST regime (albeit by way of
the refund route) is another
area that the GST Council
should consider, as companies
`Yn]eY]ka_faÕ[Yfl[YhalYd
investments in it.
Rate of tax
and pricing

27
Issue 11
Supplies of physician samples
to the medical fraternity are
mfaim]lgl`]afmkljqL`]
current approach followed for
such supplies would need to be
revisited given that movement
of said goods to own hubs
located in other states could
attract GST and also that credit
related to supply of physician
samples to the doctors would
be subject to reversal.
Physician samples
Patient assist
programs
Taxability of free supplies by
way of such programs would
need to be examined based on
l`]ajkh][aÕ[^Y[lkO`]l`]jgj
not such supplies are subject to
corresponding credit reversal
is a position that the industry
would need to take based on the
related facts.
Expired goods
Goods that are near their expiry
period and those beyond the
declared shelf life period are
returned by the distributors/
chemists to the principal for
eventual destruction. This
would result in the supplier
issuing credit notes to address
the commercial aspects of the
said supplies. The input tax
credit rules mandate reversal of
credit related to goods that are
destroyed. The industry would
need to map such transactions
and the different scenarios
thereof, study the tax positions,
mf]jklYfl`]ÕfYf[aYd
implications of such returns
during the transition period etc.
Companies should have a detailed
week-wise plan mapping the respective
consideration areas (some have been
referred to above) with corresponding
timelines for addressing them. This will
help the project management team
ljY[cl`]hjg_j]kkafj]Ydlae]YfÖY_
g^^^mf[lagfkl`Ylj]imaj]afl]jn]flagf
and special focus.
Given the impact of transitional
provisions, companies would need
to have a detailed study of the likely
impact to business, take an informed
strategic decision on the transitional
stock and engage proactively with the
association bodies/trade to arrive at a
win-win proposition.
Pricing of pharma goods during the
transitional phase and in the GST
regime would be critical, and hence
companies should have the pricing
simulations ready factoring in all
hgkkaZd]k[]fYjagk af[dmaf_Z]f]Õlk$
if any, from the area-based exemption
scheme, refunds etc.)
Credit harvesting should also be on top
of the agenda for pharma companies.
As compared to the credit blockages in
the current regime, the industry should
identify all such credit that can be
optimized in the GST regime.
Creating awareness and training
key stakeholders such as suppliers,
distributors and employees across
functions would be a key part of GST
change management.
Another work
stream that
should be given
due importance
relates to GST
compliances
and the need
of technology intervention to
smoothly transition into the GST
regime. The pharma industry would
`Yn]mfaim]j]imaj]e]flkkm[`Yk
refund of inverted duty structure,
credit reversals on physician samples
and valuation-related aspects, and
companies should accordingly evaluate
l`]j]imaj]e]flg^Y[mklgear]
application service provider (ASP)
solution apart from getting their
enterprise resource planning (ERP)
system GST compliant before the GST
go live date.
Key action steps

India is the largest producer of generic drugs globally, with the
pharmaceutical industry in India estimated at US$40 billion. Its eminence
cannot be over-emphasized, testimony to which is the Government of India
identifying it as one of the key sectors under the ambitious “Make in India”
initiative.
Traditionally, indirect lYp[gfka]jYlagfk`Yn]hdYq]Yka_faÕ[Yfljgd]
in determining where to set up manufacturing facilities and establishing
depots in various states. Under the GST regime, the expectation is that
business decisions would be independent of indirect tax considerations.
The overall tax burden is likely to reduce owing to the elimination of
cascading of taxes and availability of credits across the supply chain. An
optimized distribution network can be strategized, resulting in reduced
akljaZmlagfYfdg_akla[k[gkl:mkaf]kk]^Õ[a]f[a]kk`gmda]Yddqj]kmdl
in bringing down prices of medicines and providing a competitive edge in
international markets.
The issue of inverted duty structure that currently plagues the industry,
resulting in accumulation of credits, has been addressed by providing for
Yj]^mfe][`Yfake@go]n]j$l`]Z]f]Õlkg^km[`Ye]Ykmj]ogmdZ]Yj
^jmalgfdqa^l`]hjg[]kkakkaehd]$ljYfkhYj]flYfima[c
The tax treatment of unsold stocks lying with stockists and retailers during
transition and the treatment of loan licensee arrangements remain a
concern. The credit matching concept in GST making it incumbent on the
receiver to ensure GST compliances of supplier is stringent. Working capital
j]imaj]e]flkogmd`Yn]lgZ]j]Ykk]kk][gfka]jaf_l`Yl?KLogmd
apply even on stock transfers. Valuation of stock transfers could also be a
sticky issue.
?KL$Z]af_YlYp%lja__]j]Zmkaf]kkljYfk^gjeYlagf$ogmdj]imaj]
dedicated participation of various business functions in transitioning to
GST. Dependency on technology for adhering to GST compliances would be
kaf]imYfgf
While GST in its present form may not be ideal, it is bound to throw up
k]n]jYdghhgjlmfala]k^gjZjaf_af_af]^Õ[a]f[a]kYfak[ahdaf]Y[jgkkYfq
business.
Mohan Nusetti
@]Y$Afaj][lLYp
Lupin Limited
29
Issue 11
Industry view

Oil and gas:
One of the sectors that will be
negatively affected by GST is the oil
and gas sector, as its major products —
i.e., crude oil, natural gas, petrol, diesel
and aviation turbine fuel (excluded
products) — are outside the ambit of
GST initially whereas other petroleum
products (e.g., kerosene, naphtha and
LPG) are covered.
Under GST, the companies in this
sector would not be eligible to avail
GST credits on goods and services
used for the manufacture and sale
of excluded products. The fate
of continuity of exemptions and
concessional rate of tax available under
the current regime on procurement of
goods and services for use in the oil
and gas sector is not clear. Removal
of such concessional rate/exemptions
would increase the kitty of ineligible
credits in the sector.
This may increase the price of the
excluded products, which may reduce
their demand by forcing customers to
look for alternatives. Further, the VAT/
excise duty charged on these excluded
hjgm[lk kh][aÕ[Yddq^gjfYlmjYd_Yk!
would not be available as credits to
the companies in the sector that are
under the GST regime. This would be
another reason for increase in cost for
customers.
It might get challenging for the sector
to comply with both the current tax
regime as well as the GST regime,
o`a[`ogmdaf[dm]Õdaf_lYpj]lmjfk
under the current VAT/excise
legislations and under the GST regime,
bifurcating and apportioning eligible
and ineligible credits, dealing with
multiple tax authorities, completing
multiple assessments and possibly also
facing increased indirect tax—related
litigations.
Further, since the entire credits on self-
supply of most goods/services would
not be available to companies in this
sector, GST on such supplies would be
payable at the open market value. This
would adversely affect the industry
and might be an area of litigation in the
future.
The companies in the sector
are exploring the possibility of
restructuring their businesses to
maximize the credits and ease the
compliance burden. Restructuring
would involve separating, to the extent
possible, the businesses that are under
the GST regime from the businesses
that are outside the ambit of GST.
Another solution that the sector is
exploring is the outsourcing of the
compliance activity and electronic
reconciliation of the data recorded in
their system with the data uploaded on
GSTN by their vendors and customers.
Abhishek Jain
EY India
Restructure
the business to
maximize the
credits and ease
the compliance

Way
forward
Considering the situation the
oil and gas industry would
be in under the GST regime,
companies should consider:
Looking at their organization
structure and manpower
j]imaj]e]fl^gj[Yjjqaf_gml
the compliances
Revisiting their processes to
plug any loopholes that may
result in tax costs
Developing robust IT
implementation to reduce the
dependence on manual work
and automating compliances
Engaging with the
Government for inclusion/
zero rating of petroleum
products
9l`j]]%^gmjl`hjgm[lagfafYj]Õf]jqaklqha[Yddqg^
goods which are outside the ambit of GST. This would
mean that there would be credit reversal of three-fourth
?KLhYagf_ggkYfk]jna[]kmk]afYj]Õf]jqKaf[]
there will be huge credit reversals, there will always be
disputes with regard to availability of credits and would
require us to take decisions as regards to availability
of credits in case of disputed positions. We would be
required to comply with the current tax laws of Excise
and respective state VAT as well as the GST regime.
Managing dual compliances, electronic reconciliation and
Õdaf_lae]dqj]lmjfogmdZ]Y[`Ydd]f_af_lYkc
Exclusion of natural gas from GST means that we
will be under the GST regime as well as existing tax
regime. This would result in increase in tax costs due
to loss of input tax credits. We would be required to
undertake compliances under both the tax regimes,
which would be cumbersome. Our cross-country
pipeline (for transportation of natural gas), having a
Õp]]klYZdak`e]flaf]Y[`klYl]$ogmdimYda^qYkY
service provider in respective state. The units located
in each of such state would be required to raise an
invoice on account of self-supply of service, leading to
manyfold increase in invoices without any real business
requirement. We feel that natural gas is predominantly
an industrial input and is more environment friendly than
other fossil fuels. We are, therefore, of the view that
natural gas deserves to be included under GST regime
since beginning. We hope that considering the positive
aspects associated with natural gas, it will be included
under GST regime at an early date.
- Sanjeev Madan
?E$@E=D
- Ashish Purwar
DGM, GAIL
“
“
“
“
Industry view
31
Issue 11

Date with GST:
Are you prepared
to take the
plunge?
GST machinery
Q-1 Have you completed
the migration process,
taking a provisional ID
under GST?
Q-2 Is your IT system
more than 75% ready for
GST compliance?
Q-3 Are your vendors and
distributors in the supply
chain more than 75%
ready?
If your answer to all
these questions is in
l`]Y^ÕjeYlan]$Z]j]kl
assured that your business
gains an edge over
competition on day one of
the GST implementation.
Are you
ready for
GST?
The countdown has begun and the stage seems to be all set for the
rollout of a new tax reform that aims to replace the current complex
structure of multiple indirect taxes with a dual GST. Its expected
implementation from 1 July 2017 signals a new era in indirect
tax administration as it infuses a fundamental change in the basic
concepts and practices of indirect tax. With just a few days away,
GST has created a lot of sensation and anxiety among every single
stakeholder.
Egklg^l`]ogjcj]imaj]^gjeYcaf_?KLYj]Ydalq`YkZ]]f
completed. The GST Council, consisting of representatives from the
Central as well as state governments, has met on 17 occasions in
the past seven months and cleared:
• GST Acts
• GST Rules
• Forms
• Tax rate structure, including Compensation Cess
• ;dYkkaÕ[Ylagfg^_ggkYfk]jna[]k
• Exemptions
• Thresholds
• Tax administration

33
Issue 11
GST rates
JYl][dYkkaÕ[Ylagf
for
goods
7%
14%
17%
43%
19%
Exempted 5% 12% 18% 28%
Food grains, Cereals, Milk, Jaggery,
Common salt
Coal, Sugar, Tea and coffee, Drugs
and medicine, Edible oil, Indian sweets
Fruit juices, Vegetable juices, Beverages
containing milk, Bio-gas fuel, Fertilizers
Capital goods, Industrial intermediaries,
@Yajgad, Soap, Toothpaste
Air conditioner, Refrigerators
Small cars (1%/3% cess), Luxury cars
(15% cess)
Exempt
5%
12%
18%
28%
28% + CESS

JYl][dYkkaÕ[Ylagf
for
services
=m[Ylagf$@]Ydl`[Yj]$J]ka]flaYd
Y[[geegYlagf$@gl]dk'Dg_]koal`
tariff below INR1,000
Goods transport, Rail tickets (other than
sleeper class), Economy class air tickets,
Cab aggregators, Selling space for
advertisement in print media
Works contract, Business class air travel,
Telecom/Financial services, Restaurant
services, Cinema tickets (ticket price up
lgAFJ)((!$@gl]dk'Dg_]koal`lYja^^
between INR1,000 and INR7,500
Cinema tickets (ticket price exceeding
AFJ)((!$:]llaf_$?YeZdaf_$@gl]dk'Dg_]k
with tariff above INR7500
Exempt
5%
12%-18%
28%

Important dates
Enrolment: The window for migration will re-open for the third time on 25 June 2017 and will be kept open for three months.
GST returns:J]dYpYlagf`YkZ]]fhjgna]^gjl`]Õjkllogegfl`kg^?KLaehd]e]flYlagf2
*The facility for uploading outward supplies for July 2017 will be available from 15 July 2017.
Return
month
GSTR – 1 GSTR – 2 (auto populated from GSTR-1) GSTR – 3B
Due date Extended date Due date Extended date
July 2017 10 August 1 – 5 September * 11 - 15 August 6 – 10 September 20 August
August 2017 10 September 16 – 20 September 11 – 15 September 21– 25 September 20 September
Checklist for being GST ready
• J]%oaj]qgmj]fl]jhjak]j]kgmj[]hdYffaf_ =JH!kqkl]eklg[Yhlmj]j]d]nYflYlYÕ]dkafY[[gjYf[]oal`l`]f]o
j]hgjlaf_j]imaj]e]flmf]j?KL
• Align your invoicing and debit/credit note formats and the vendor and customer masters updated with their respective
klYl]%oak]?KLa]flaÕ[YlagffmeZ]j
• ]n]dghjYl]eYkl]jkoal`Y@Yjegfar]Kqkl]eg^Fge]f[dYlmj] @KF!Yfk]jna[]Y[[gmflaf_[g]koal`l`]Yhhda[YZd]
rates
• Realign your business with the supply chain — on the procurement and the distribution fronts — to adapt to the new tax
regime
• Initiate the process of negotiating the tax-triggered product re-pricing with vendors
• Revisit your purchase orders, logistics and warehousing strategies
• =fkmj]l`Yll`]j]akj]imakal]YoYj]f]kk$ljYafaf_Yf[YhY[alqZmadaf_$YfÕpl`]jgd]kYfj]khgfkaZadala]kg^h]ghd]
across levels
• To mitigate the risk of loss of tax credit, assess the details of stock in hand and unutilized tax and duty credits vis-a-vis
expected state-wise taxable supplies under GST and appropriate strategy framed for transitioning such credits
• Plan to engage with Application Software Providers/GST Suvidha Providers or GST practitioners who combine tax domain
expertise with technology
35
Issue 11

Global
News

BEPS Multilateral Instrument (MLI) signed
by 68 countries1
01
In October 2015, the Organisation
for Economic Co-operation and
Development (OECD) released the
ÕfYdj]hgjlkgfl`])-Y[lagfal]ek
g^l`]:=HK9[lagfHdYfL`]ÕfYd
reports contain recommendations
that target domestic rules as well
as tax treaty provisions — namely,
recommendations in relation to
treaty abuse, hybrid mismatches,
permanent establishment and
dispute resolution. To enable
jurisdictions to swiftly and
consistently implement the treaty-
ZYk]j][gee]fYlagfk$l`]ÕfYd
report on Action 15 analyzed
whether an MLI was feasible.
Accordingly, MLI was developed by
approximately 100 jurisdictions,
including OECD member countries,
G20 countries and other developed
and developing countries.
@go]n]j$alakgh]f^gjka_fYlmj]lg
any interested jurisdictions.
On 7 June 2017, 68 jurisdictions
signed the MLI during a signing
ceremony hosted by the OECD
in Paris. Eight other jurisdictions
expressed their intent to sign the
MLI in the near future.
At the time of signature, the
signatories submitted a list of
their tax treaties in force that
they would like to designate
as Covered Tax Agreements
(CTAs), i.e., to be amended
through the MLI. Together with
the list of CTAs, signatories also
submitted a preliminary list of their
j]k]jnYlagfkYffglaÕ[Ylagfk EDA
positions) in respect of the various
hjgnakagfkg^l`]EDAL`]]Õfalan]
MLI positions for each jurisdiction
will be provided upon the deposit
g^alkafkljme]flg^jYlaÕ[Ylagf$
acceptance or approval of the MLI.
The MLI will enter into force after
Õn]bmjaka[lagfk`Yn]]hgkal]
l`]ajafkljme]flkg^jYlaÕ[Ylagf$
acceptance or approval of the MLI.
Oal`j]kh][llgYkh][aÕ[ZadYl]jYd
tax treaty, the measures will only
enter into effect after both parties
to the treaty have deposited
l`]ajafkljme]flkg^jYlaÕ[Ylagf$
acceptance or approval of the MLI
YfYkh][aÕ]lae]`YkhYkk]
At this stage, it is expected that
over 1,100 tax treaties will be
egaÕ]ZYk]gfeYl[`af_
l`]kh][aÕ[hjgnakagfkl`Yl
jurisdictions wish to add or change
within the CTAs nominated by
the signatories. Signing the MLI
constitutes an unprecedented
moment in international taxation.
It is also a key milestone in the
implementation of the treaty-based
BEPS recommendations.
1 Refer EY global alert titled, “68 jurisdictions sign the Multilateral Convention to Implement Tax Treaty Related
Measures to Prevent BEPS,” dated 7 June 2017
37
Issue 11

Australian ruling on interest paid on cross-
border loan between related parties
02
An Australian holding company
;`]njgf9mkljYdaY@gdaf_kHlq
Ltd. (Aus Co)
2
entered into a
credit facility agreement with CFC
(Lender Co), a subsidiary of Aus Co
and tax resident in the US. Lender
Co was formed to raise debt funds
through commercial papers (CP)
in the US market at lower interest
rates with the help of guarantee
from the ultimate parent company
in the US (Parent Co). The inter-
company interest rate was set at
9%.
The debt borrowed by Aus Co was
not backed by any guarantee or
any security. Aus Co claimed that
the interest paid was at arm’s
length price (ALP) as the third-
party lender would have provided
unsecured non-guaranteed debt to
Aus Co on such comparable terms.
Lender Co was not taxable in the
US on the interest received from
Aus Co. As a result of the interest
differential, Lender Co generated
hjgÕlk$o`a[`alakljaZml]Yk
dividend to Aus Co, which were
exempt from tax in Australia. The
pictorial representation of the facts
is as under:
L`]9mkljYdaYfLYpg^Õ[] 9LG!
alleged that the 9% interest paid by
Aus Co was in excess of an arm’s
length rate under the transfer
pricing (TP) law of Australia. The
Australian Court agreed with the
ATO’s position and held that:
2 Refer EY global alert titled, “Australian Court rejects Chevron’s appeal relating to borrowing from related party,” dated 1 May 2017
1 Under the Australian TP
law, the consideration to the
transaction relates to not just
the interest paid but potentially
also the giving of security,
ÕfYf[aYd[gn]fYflkgjYhYj]flYd
guarantee. In the present case, it
was reasonable to assume that in
an arm’s length scenario, Parent
Co would have provided additional
k][mjalq'_mYjYfl]]Yf'gjj]imaj]
covenants to be included in an
unsecured loan agreement.
2While applying the independent
assumptions in TP laws, relevant
attributes of the broader corporate
group to which the taxpayer is a
member should be considered.
Accordingly, Aus Co should not
be treated as a standalone/
orphan company that is wholly
independent of the corporate
group to which it belongs.
3Af]^^][l$Yka_faÕ[Yflj]m[lagf
in interest rate should apply to this
loan.
Raised loan
through
CP at 1.2%
Loan given
at 9%
Interest
paid
Parent Co
Aus Co
Lender Co
US
AUS
US

Germany issues draft guidance for withholding
tax on cross-border payment for use of
software and databases3
03
The German Federal Ministry of
Finance issued a draft guidance
that contains 13 examples and
covers situations where a domestic
(German) customer obtains the
temporary use right for software
or database applications from a
foreign vendor/licensor and uses
this right in its (domestic) business.
Under current German law,
a cross-border “payment in
consideration for the temporary
use of a right”/“payment for a
transfer of know-how” should
_an]jak]lgoal``gdaf_lYp O@L!
in a business-to-business (B2B)
situation. Business to consumer
(B2C) transactions should not give
jak]lgO@L
According to the draft guidance,
the overriding principle that
determines whether a software/
database transaction leads to
Y?]jeYfO@LgZda_Ylagf^gj
the payer is whether the user is
being granted rights to exploit the
software/database that go beyond
those rights that are typically
granted for the intended use of
the software/database. The draft
guidance provides the following
examples:
+=Q_dgZYdYd]jllald]$É?]jeYfqakkm]kjY^l_maYf[]gf[dYkkaÕ[Ylagfg^[jgkk%Zgj]jkg^loYj]YfYlYZYk]mk]
payments for withholding tax purposes,” dated 18 May 2017
1 Cross-border payment for the
use of word processing software
with a right to create 5,000
copies to be used by employees
of the German customer: No WHT
obligation, as no rights are granted
beyond the intended use.
2 German IT-sourcing company
purchases license to use word
processing software in the group
to which the sourcing company
belongs (via sub-licenses): No WHT
obligation, as no rights are granted
beyond the intended use
3 Foreign parent allows German
subsidiary to further develop,
copy and distribute the parent’s
software products against royalty
payments: WHT obligation, as
rights are granted that go beyond
those needed for the intended use
of the software
4 German subsidiary of foreign
software developer is a reseller of
downloadable software: No WHT
obligation, as this is only a sales
transaction.
39
Issue 11

5 Foreign company provides
“infrastructure as a service”
(IaaS) offering through a German
subsidiary and, together with the
right to use the IaaS, grants the
German subsidiary the right to
use and modify (for customer use)
archiving software: The IaaS-
related payment would not be
subject to WHT (service, no grant
of right), while the right to use
and modify the software should be
subject to WHT.
6 Cloud-based “software as
a service” (SaaS)/”application
service provision” (ASP)
transactions where software
remains installed on the service
provider’s server, and beyond the
use of software, additional services
are agreed (software maintenance
and updates, data storage and
hotline service): No WHT, as no
rights are granted beyond the
intended use.
7 The foreign cloud service
company interposes a German
ASP distributor, who contracts
with German customers: Payments
by the German ASP distributor
become subject to WHT, as rights
are granted that go beyond those
needed for the intended use of the
software (distribution rights).
8 Foreign SaaS company
distributes in Germany through a
subsidiary, which is being granted
[ghq$egaÕ[Ylagf$akljaZmlagfYf
publication rights to the software:
Payments by the German SaaS
distributor become subject to WHT.
9 Payments for access to online
k[a]flaÕ[bgmjfYd gfdqj]Yaf_Yf
printing rights): No WHT obligation.
10Foreign rating agency
allows German bank through end
mk]jda[]fk]lgmk]ÕfYf[aYdeYjc]l
data online (access, reading and
printing rights): No WHT obligation.
11If the German bank also has
the right to grant its customers
access to the database: WHT
obligation, as rights are granted
that go beyond those needed for
the intended use of the database.
12 The bank also has the right
to grant its customers access to
data generated from the database
(although not access to the
database itself): No WHT obligation,
as no rights are granted beyond the
intended use.

China guidance on TP and mutual agreement
procedure4
04
China’s State Administration of
Taxation (SAT) issued SAT Bulletin
Gonggao [2017] No. 6, effective
from 1 May 2017 (Bulletin 6)
providing new TP guidance
and strengthening the Mutual
Agreement Procedure (MAP)
process.
1 MAP process: Bulletin 6
contains detailed provisions
governing the MAP process for
TP cases. Taxpayers should apply
directly to the SAT if they wish to
invoke the MAP for their TP cases.
Taxpayers with ongoing special
tax investigations or those who
have not paid taxes assessed in an
investigation may be denied access
to MAP.
2 Intangible property
transactions: In addition to the
DEMPE functions (development,
enhancement, maintenance,
protection and exploitation),
Bulletin 6 adds promotion as a sixth
function (i.e., DEMPEP functions),
demonstrating the importance
China places on value created
through marketing activities
undertaken by Chinese companies.
3 Review of intercompany
royalty: Tax inspectors are
advised to pay particular attention
to whether: (i) the value of the
licensed intangibles has declined
since the royalty was initially
established, (ii) price adjustment
clauses are commonly found
in third-party contracts in the
industry, (iii) functions as well as
assets and risks have changed and
(iv) the licensee has performed
DEMPEP functions for which it has
not been reasonably compensated
4 :Yk]=jgkagfYfHjgÔl
Shifting guidance: (1) An entity
that merely funds intangible
development activities but does
not perform any DEMPEP functions
should only be entitled to earn a
j]YkgfYZd]ÕfYf[af_j]lmjf$Yf
(2) an entity that has mere legal
ownership but does not control
ÕfYf[af_^mf[lagfkgjjakckk`gmd
not be entitled to any intangible
j]dYl]hjgÕlk
5 Intercompany services
transactions: Bulletin 6 follows
the internationally accepted and
G=;%kYf[lagf]Z]f]Õll]kl
It incorporates a provision that
empowers tax authorities to
disallow a deduction for service
fees paid to a related party
l`Ylg]kfgl`Yn]ka_faÕ[Yfl
substance.
6 Dg[Ylagf%kh][aÔ[YnYflY_]k
(LSA): LSA adjustments are
gfdqj]imaj]a^l`][gehYjYZd]k
operate in different economic
conditions. Existence of LSAs is a
comparability factor for TP analysis
and LSAs are not themselves
intangible property.
7TP methods: The transactional
net margin method (TNMM )
is generally not appropriate in
transactions where the tested
hYjlq`Ykka_faÕ[YflaflYf_aZd]
assets. In addition, where the
Chinese taxpayer undertakes
ka_faÕ[Yfl=EH=H^mf[lagfk$
including promotion activities, tax
authorities may argue that a PSM
should be applied
4 EY global alert titled, “China issues updated transfer pricing and Mutual Agreement
Procedure rules,” dated 7 April 2017
41
Issue 11

Yfak`]ehdgq]]Ìk`ge]g^Õ[][gfklalml]kH=g^
the German employer5
05
A German corporation (Taxpayer)
engaged in delivering software
and hardware solutions had hired
a Danish resident sales manager
to carry out sales activities and
customer service in Denmark and
the other Scandinavian countries.
The sales manager received a
laptop and a mobile phone from
the Taxpayer, and his travel
expenses were also reimbursed by
the Taxpayer. The sale manager
oYkfglhjgna]oal`Yfqg^Õ[]'
premise in Denmark and his
]ehdgqe]fl[gfljY[lj]imaj]
`aelgogjc^jge`ge]@go]n]j$
he was not to be reimbursed
for furnishing or in other ways
^gjk]llaf_mhY`ge]g^Õ[]@]
also carried out his work at the
premises of the clients, partners
and suppliers.
The issue under consideration
was whether the home of the
employee was to be considered as
YÕp]hdY[]H=g^l`]LYphYq]jaf
Denmark.
Based on OECD Model Convention,
the Tax Board ruled that the sales
manager’s occasional use of a
`ge]g^Õ[]^gjYeafakljYlan]
work would constitute a PE of his
employer, the Taxpayer. In coming
to its conclusion, the Tax Board
observed the following:
1 It is irrelevant whether the
premises are owned, rented or in
other ways made available for the
taxpayer, as long as core business
activities of the foreign corporation
are effectively and habitually
carried out at the premises.
5 Refer EY global alert titled, “Danish Tax Board rules that Scandinavian sales manager’s work from home creates PE for German
company,” dated 19 April 2017
2 L`]`ge]g^Õ[]akYll`]
disposal of the taxpayer if the core
business activities of the taxpayer
are effectively carried out at the
premises by the employee(s) of the
taxpayer.
3 The administrative work
carried out at the sales manager’s
home was carried out in connection
with his work for his employer and
imYdaÕ]Yk[gj]Zmkaf]kkg^l`]
German corporation.
4 Work carried out at the
`ge]g^Õ[]emklZ]j]_Yj]
as occurring on a regular basis,
and thus not be sporadic and
occasional, simply due to the
fact that the work at home can
be planned as part of the regular
course of carrying out his work as
sales manager.

Russian ministry denies lower WHT rate under
a look through approach6
06
The Russian Finance Ministry (the
Ministry) recently (7 December
2016) published a letter clarifying
the application of the “look through
approach” in relation to dividend
payments. The Ministry considers
a situation in which the actual
recipient of dividends is a foreign
company whose participation in
the capital of the Russian company
paying the dividends is not direct
but indirect (structured via a
series of intermediate holding
companies).
As per the Russian domestic laws,
the recipient of income has to
^mdÕdYk]lg^[jal]jaYafgj]jlg
imYda^q^gjZ]f]Õlkmf]jJmkkaYf
tax treaties. In many cases, this
position would prevent a lower
O@LjYl]^jgeZ]af_Yhhda]mf]j
the “look-through approach” by
virtue of the fact that a foreign
shareholder made its investment
in a Russian company not directly
but through intermediate foreign
companies, which are not the
actual recipients of the dividends.
In order for the look-through
approach to be applied to
dividends, the following conditions
must be met:
1 The entity to which
the payment is made must
acknowledge that it does not have
an actual right to the income.
2 The entity that has an actual
right to the income must hold a
direct and/or indirect interest in
the Russian company paying the
dividends.
3 The entity that has an actual
right to the income must provide
the following documents to the tax
agent before the date on which the
income is paid:
• ;gfÕjeYlagfg^j]ka]f[]g^
a state with which Russia has
an international tax treaty,
[]jlaÕ]ZqY[geh]l]fl
authority of the relevant foreign
klYl] lYpj]ka]f[][]jlaÕ[Yl]!
.=Q_dgZYdYd]jllald]$ÉJmkkaYfafYf[]Eafakljqakkm]k[dYjaÕ[Ylagfgfmk]g^dggc%l`jgm_`YhhjgY[`j]_Yjaf_
dividend payments,” dated 30 March 2017
• ;gfÕjeYlagfl`Yll`][gehYfq
has an actual right to receive
the income in question
In the letter, the Ministry examines
a situation in which the actual
recipient of the dividend income
paid by a Russian company is a
Spanish tax-resident company.
The Ministry asserts that in order
lgimYda^q^gjl`]-jYl]$YKhYfak`
tax resident, which is the actual
recipient of dividends, must have
invested at least EUR100,000
directly in the capital of the Russian
company paying the dividends.
Therefore, under the look-though
approach the Russian tax agent
would have to withhold tax at the
higher rate of 10%.
@go]n]j$l`]j]akkmhhgjl^gjl`]
taxpayer’s position that the lowest
tax rate is applicable, since the
look-though approach as such is
an expression of the substance-
over-form principle, and using it as
a basis for applying a selectively
formal approach to individual
[jal]jaYakim]klagfYZd]
43
Issue 11

India has become a favored investment destination in light of its large domestic consumption
based economy, favorable demographics, skilled workforce and the continuing global focus
on emerging markets. In recent times, the Government of India has been constantly aiming
lgoYj[j]Ylaf_Yfgf%Yn]jkYjaYd$Zmkaf]kk%^ja]fdqYfegj]_gn]jfYf[]%gja]fl]ÕfYf[aYd
and economic environment. It has adopted various measures to attract foreign investment in
the country, one of which is the relaxation in the FDI policy for the investors and abolition of
the Foreign Investment Promotion Board (FIPB).
FDI investments in India are governed by a comprehensive FDI policy
1
. It embodies the
_]f]jYdYfk][lgj%kh][aÕ[[gfalagfkgfA^gjhjgkh][lan]Yf]paklaf_^gj]a_fafn]klgjk
in India. Every year, the Department of Industrial Policy Promotion (DIPP), a Government
body under the aegis of the Ministry of Commerce Industry, releases a circular updating
the policy. The annual circular consolidates all the FDI-related policy announcements through
Regulatory
Update
What after FIPB?

press notes/press releases issued
during the year. The Reserve
Bank of India (RBI) is the nodal
agency for administration of
foreign investments and foreign
exchange. The procedural
instructions for administration
of the FDI policy are issued by
the RBI by making necessary
amendments to the regulations/
directions announced under Foreign
Exchange Management Act, 1999
(FEMA). This policy framework is
operationalized by rules, regulations
and circulars issued from time to
time.
FDI can be made in India under the
automatic route or the government
route. Over a period of time, the
Government has liberalized its
FDI policy and brought majority of
the sectors (over 90%) under the
automatic route.
Under the automatic route,
hjg[]mjYddq$afn]klgjkYj]j]imaj]
to comply with the dual reporting
j]imaj]e]floal`l`]J:A$Yll`]
time of receipt of funds for capital
injection and also at the time of
issuance of capital instruments.
Under the government route,
proposals are considered and
approved by the Government
after considering the credentials
of the investor, amount of
foreign investment, trade
Z]f]Õlk$]ehdgqe]fl_]f]jYlagf$
infrastructure creation etc. Once
a company has been granted
an approval, the dual reporting
j]imaj]e]flYkhj]k[jaZ]mf]j
the automatic route needs to be
complied with.
In addition, there are certain
sensitive sectors where FDI is
prohibited, e.g., lottery business,
gambling and betting, chit funds,
Nidhi companies, and real estate
business or construction of
farmhouses.
Until now, proposals falling under
the government route were
approved by the FIPB with total
^gj]a_f]imalqafÖgomhlgAFJ-$(((
crore and additionally by the Cabinet
Committee on Economic Affairs
;;=9!oal`lglYd^gj]a_f]imalq
afÖgoZ]qgfAFJ-$((([jgj]
2
.
It is pertinent to note that the
@gfÌZd]afYf[]Eafakl]jaf`ak*()/
Budget speech had announced the
abolishment of the FIPB. In line
with the Budget announcement, on
24 May 2017, the Union Cabinet
formally approved the proposal
of scrapping the FIPB in line with
the ultimate objective of “ease of
doing business” and the principle
of “maximum governance and
minimum government.”
After this decision,
proposals for foreign
investments mandating
government approval,
which were earlier
considered by the FIPB,
will now be considered and
approved by the respective
line ministries/departments
in consultation with the
DIPP. Further, proposals
involving security concerns
will additionally mandate
the approval of the Ministry
g^@ge]9^^YajkHjghgkYdk
oal`lglYd^gj]a_f]imalq
afÖgoZ]qgfAFJ-$(((
crore would continue to be
additionally cleared by the
CCEA.
The SOP for granting approvals
for foreign investments would be
announced by the DIPP shortly.
It is expected that the said SOP
may provide for transit provisions,
timelines for granting the approvals,
j]na]oe][`Yfake$Õdaf_e][`Yfake
and other matters in connection
with granting approvals. The
step of dismantling the FIPB and
shifting the approval mechanism
to the respective ministries might
streamline the approval process
and cut the timelines in granting
approvals.
Based on publicly available
information, it is expected that the
DIPP is in the process of further
liberalizing the FDI policy, by
enhancing FDI limits, bringing more
sectors under the automatic route
and simplifying other conditions in
the government/automatic route
sectors to attract more foreign
investment. In order to attract more
global players in the single brand
retail trading (SBRT) sector, the
automatic route limit in the sector
is likely to be enhanced from the
existing 49% to 100%. Further, the
demands made by foreign retailers
for allowing non-food items such
as homecare products may also be
considered in the ensuing FDI policy.
It is also likely that the Government
may further relax its policy for
sectors such as construction
development and print media.
The further liberalization in the FDI
policy and approval mechanism
announced by the Government
recently is aimed at removing the
procedural impediments by avoiding
duplication and making the process
simpler for the foreign investors.
This is expected to improve the
business environment and attract
more FDI into the country.
1 http://dipp.nic.in/English/Policies/FDI_Circular_2016.pdf
2 http://dipp.nic.in/English/Policies/FDI_Circular_2016.pdf
45
Issue 11

EconoMeter
eY[jg%Õk[Ydlj]fk

47
Issue 11
• The IMF and the World Bank lowered India’s FY17 GDP forecast to 6.8% on account of demonetization. The IMF projects
India to grow by 7.2% in FY18 and 7.7% in FY19.
• The RBI, in its June 2017 Monetary Policy Review, projected a strengthening of GVA growth at 7.3% in FY18 from 6.6% in
FY17.
• The IMF projects global growth to rise from 3.1% in 2016 to 3.5% in 2017 and 3.6% in 2018.
India remains a global growth leader in FY18 and beyond in
spite of the adverse effect of demonetization on FY17 growth
Chart 1: IMF World Economic Outlook, April 2017
Source: IMF World Economic Outlook, April 2017
^gj][Yklh]jlYafklgÕk[Ydq]Yj
3.6
1.7
1.4
0.6
1.6 1.5
2.5
1.6
6.2
7.7
3.5
0.2
1.4
1.2
1.7
2.0
2.3
0.8
6.6
7.2
0.0
5.0
10.0
Global
growth
Brazil Russia Japan Euro
area
The UK The US South
Africa
China India*
2018 2017

• After demonetization, GVA growth in 4QFY17 fell sharply to 5.6%.
• ?jgolàfÕfYf[aYdk]jna[]kYfeYfm^Y[lmjaf_ka_faÕ[Yfldqkdgo]gofoàd]l`Ylaf[gfkljm[lagf[gfljY[l]Yko]ddaf
4QFY17.
• But for public administration and defense services and agriculture, output growth would have fallen further.
After demonetization, output growth in 4QFY17 fell to 5.6%
Table 1: GVA: annual and quarterly growth rates (%, y-o-y)
Source (Basic Data): MOSPI GVA: gross value added
Sector
1Q
FY17
2Q
FY17
3Q
FY17
4Q
FY17
FY14 FY15 FY16 FY17
Agr. 2.5 4.1 6.9 5.2 5.6 -0.2 0.7 4.9
Ming. -0.9 -1.3 1.9 6.4 3.1 9.8 10.5 1.8
Mfg. 10.7 7.7 8.2 5.3 5.1 7.7 10.8 7.9
Elec. 10.3 5.1 7.4 6.1 4.0 7.3 5.0 7.2
Cons. 3.1 4.3 3.4 -3.7 3.0 4.1 5.0 1.7
Trans. 8.9 7.7 8.3 6.5 6.8 8.9 10.5 7.8
Fin. 9.4 7.0 3.3 2.2 11.0 11.3 10.8 5.7
Publ. 8.6 9.5 10.3 17.0 3.8 8.1 6.9 11.3
GVA 7.6 6.8 6.7 5.6 6.2 7.0 7.9 6.6
• ?jgolàf_jgkkÕp][YhalYd^gjeYlagf$j]Ö][laf_afn]kle]fl]eYfafl`]][gfgeq$][daf]^jge/,af)IQ)/lg
%!*)af,IQ)/j]_akl]jaf_alklàj[gfk][mlan]imYjl]jdq][daf]
• Growth in export and import demand picked up in 4QFY17.
Demand conditions signal continued weakness in investment
Table 2: Annual and quarterly growth in components of aggregate demand with 2011—12 as base (% y-o-y)
at constant prices
Source: CSO, MOSPI, Government of India
H;=2hjanYl]ÕfYd[gfkmehlagf]ph]falmj]3?;=2_gn]jfe]flÕfYd[gfkmehlagf]ph]falmj]3?;2_jgkkÕp][YhalYd^gjeYlagf3=PH2
]phgjlk3AEH2aehgjlk3?HEH2?HYleYjc]lhja[]k
AD component
1Q
FY17
2Q
FY17
3Q
FY17
4Q
FY17
FY14 FY15 FY16 FY17
PFCE 8.4 7.9 11.1 7.3 7.4 6.2 6.1 8.7
GCE 16.6 16.5 21.0 31.9 0.6 9.6 3.3 20.8
GFCF 7.4 3.0 1.7 -2.1 1.8 3.2 6.5 2.4
EXP 2.0 1.5 4.0 10.3 7.8 1.8 -5.3 4.5
IMP -0.5 -3.8 2.1 11.9 -8.1 0.9 -5.9 2.3
GDP 7.9 7.5 7.0 6.1 6.5 7.3 8.0 7.1

49
Issue 11
• The RBI left the repo rate unchanged at 6.25% in its June 2017 Review.
• ;gfkme]jHja[]Af]p%ZYk]afÖYlagf][j]Yk]lgY`aklgja[dgog^**afEYq*()/m]lgYk`Yjh^Yddaf^gghja[]
afÖYlagf$hYjla[mdYjdqafn]_]lYZd]kYfhmdk]k
RBI left the repo rate undisturbed, maintaining its neutral
stance in June 2017
;`Yjl*2AfÕYlagf q%g%q3!
Source: MOSPI
0
2
4
6
8
10
12
14
May
14
Jul
14
Sep
14
Nov
14
Jan
15
Mar
15
May
15
Jul
15
Sep
15
Nov
15
Jan
16
Mar
16
May
16
Jul
16
Sep
16
Nov
16
Jan
17
Mar
17
May
17
New CPI inÖation InÖation target: upper end InÖation target: lower end

• L`];]fl]jÌkÕk[Yd]Õ[alklggYl+-*g^?HafQ)/
• Disinvestment receipts stood at INR46,246.5 crore for FY17, meeting the FY17 revised estimate of INR45,500 crore.
• ak[Yd]Õ[alafl`]Õjklegfl`g^Q)0oYk*-/g^l`]YffmYdZm_]l]lYj_]l
L`];]fl]je]lalkÔk[Yd]Ô[allYj_]lg^+-g^?Haf
FY17, driven by buoyant tax revenues
;`Yjl+2ak[Yd]Ô[alYkYg^?H
Source: Union Budget FY18, Monthly Accounts, Controller General of Accounts, Government of India
5.8
4.9
4.5
4.0
3.9
3.5
3.2
3.0
3.5
4.0
4.5
5.0
5.5
6.0
FY12 FY13 FY14 FY15 FY16 FY17 FY18 (BE)
• L`];]fl]jÌkj]n]fm]]Õ[alklggYl*(+g^?HafQ)/$kda_`ldqdgo]jl`Yfl`]j]nak]]klaeYl]g^*)g^?H
• J]n]fm]]Õ[alaf9hjadQ)0oYkYl++.g^l`]YffmYdZm_]l]lYj_]l
L`];]fl]jYdkgeYfY_]lgY[`a]n]alkj]n]fm]]Ô[allYj_]l^gjQ)/
;`Yjl,2J]n]fm]]Ô[alYkYg^?H
Source: Monthly Accounts, Controller General of Accounts, Government of India
4.4
3.7
3.2
2.9
2.5 2.0
1.9
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0

• Gross tax revenue grew by 17.9% in FY17 compared to 17.0% in FY16.
• Direct taxes grew by 12.3% and indirect taxes by 22.9% in FY17.
• Growth in non-tax revenues was low at 9.3% in FY17 due to a contraction in the Center’s
afl]j]klj][]ahlkYfYkdgogofafl`]_jgol`gâna]fkYfhjgÕlk
• @a_`_jgolàfaf[ge]lYpj]n]fm]afQ)/ *)-!oYkdYj_]dqm]lglogaf[ge]
disclosure schemes after demonetization.
• ?jgolàf]p[ak]mla]kafQ)/ +*/!oYkdgo]jl`YfafQ).$j]Ö][laf_egn]e]flaf
h]ljgd]mehja[]kYf[gfk]im]flYbmkle]flafkh][aÕ[]p[ak]mlq
• ?jgolàf[gjhgjYlagflYp ./!Yf[mklgekmlq /,!j]eYaf]dgoafQ)/$j]Ö][laf_
weakness in investment and imports.
Tax revenues grew by 18% in FY17 but growth in non-tax
revenue remained sluggish
Major central taxes have performed satisfactorily
Table 3: Gross tax and non-tax revenue (annual growth rate, y-o-y)
Source: Union Budget FY18 and Monthly Accounts, Controller General of Accounts, Government of India
RE: revised estimates; BE: budget estimates;
Tax/Non-tax
revenue
FY14 FY15 FY16 FY17 FY18
(BE)
Gross tax revenue 9.8 9.3 17.0 17.9 11.3
Non-tax revenue 44.6 -1.1 27.3 9.3 5.3
Table 4: Tax revenues (annual growth rates, y-o-y)
Source: Union Budget FY18 and Monthly Accounts, Controller General of Accounts, Government of India
Tax revenues FY14 FY15 FY16 FY17
FY18
(BE)
Corporation tax 10.8 8.7 6.0 6.7 11.1
Income tax 20.8 8.7 8.5 21.5 29.6
Custom duty 3.8 9.2 11.9 7.4 8.4
Excise duty -3.6 11.6 51.9 32.7 6.8
Service tax 16.7 8.6 25.8 20.4 8.0

53
Issue 11
• Total expenditures of the Central Government grew by 11.4% in FY17 from 7.8% in FY16.
• Growth in revenue expenditure increased sharply to 9.5% in FY17 due to the implementation
of the 7th Central Pay Commission’s recommendations.
• In April FY18, revenue expenditure grew by 51.2% from 9.9% in April FY17.
• Growth in the Center’s capital expenditure marginally fell to 23.4% in FY17 from 25.8% in FY16.
• Budgeted capital expenditure growth in FY18 is only 6.7% over the actual achieved in FY17.
• In April FY17, capital expenditure grew by 37.7% as against a contraction of (-) 20.5% in April FY17.
Growth in the Center’s revenue expenditure increased sharply in
FY17 due to revision of salaries and pensions
Growth in the Center’s capital expenditure fell in FY17. It is
budgeted to fall further in FY18
Chart 5: Growth in revenue expenditure (%, y-o-y)
9.8
8.9
10.7
6.0 5.5
9.5
9.0
1
3
5
7
9
11
13
15
Chart 6: Growth in capital expenditure (%, y-o-y)
-25.8
40.9
12.4
-0.5
25.8 23.4
6.7
-30
-20
-10
0
10
20
30
40
50

EY India Tax Insights blog
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HY_]2ooodafcaf')iQB1r`
EY T itt

55
Issue 11
EY India GST webpage
Access our GST webpage for
the latest updates and views
www.ey.com/in/GST
EY India Tax Insights App
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About EY
EY is a global leader in assurance, tax, transaction and
Ynakgjqk]jna[]kL`]afka_`lkYfimYdalqk]jna[]ko]
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© 2017 Ernst Young LLP. Published in India.
All Rights Reserved.
EYIN1706-069
ED None
This publication contains information in summary form and is therefore
intended for general guidance only. It is not intended to be a substitute
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Ernst Young LLP nor any other member of the global Ernst Young
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JJ
Ernst Young LLP
EY | Assurance | Tax | Transactions | Advisory
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